Record mortgage fees hit first-time buyers
Lenders are raising arrangement fees to boost profits, but that doesn't mean there aren't good deals around
Mortgage fees have reached new high levels, according to figures published by Moneyfacts this week.
Four years ago the average arrangement fee was £889. Since then it has climbed 70.3 per cent to £1,514.
The research showed that the average fee on a two-year, fixed-rate mortgage is now £1,565 while a five-year, fixed deal is slightly less at £1,014.
The figures suggests that lenders are making it harder than ever for first-time buyers to clamber onto the property ladder.
Why? Profits, according to Sylvia Waycot of Moneyfacts.
"There is no logical reason why fees have increased so much," she said. "In August and September alone, they have increased by an average of £42."
She thinks lenders are keen to push the high fees because they are an upfront cost they can bank.
But the high average arrangement fees should not deter potential borrowers, said mortgage experts.
"You shouldn't look at the fees in isolation," said Andrew Hagger of Moneycomms. "The fees have got nothing to do with the cost of the admin in setting up a mortgage these days, but are purely used in conjunction with the interest rate as part of the overall pricing," he said.
Consequently, borrowers should focus on the total cost when comparing loan deals.
Adrian Anderson, director of broker Anderson Harris, agreed that the arrangement fees have nothing to do with the cost of administration.
"It is simply part of the pricing strategy employed by the lender – if it offers a cheap rate, it usually makes up some of its money on the fee."
Mortgage adviser Colin Payne of Chapelgate Associates pointed out that some lenders – such as Woolwich and NatWest – charge no arrangement fees while others charge on a percentage basis, which means the fee can end up much higher.
"Santander, for example, charges a 2.5 per cent arrangement fees on some products," he said. "On the average mortgage loan size of £138,345 this would equate to a fee of £3,459, well above the average quoted by Moneyfacts."
With most lenders offering a wide range of mortgage deals, all offering different interest rates and arrangement fees, it can be a minefield for potential borrowers.
"But after careful research you can calculate the most suitable product for the level of borrowing," said Mr Payne. "Generally for larger loans it may be better to pay a higher fee in order to take advantage of a lower rate."
That's borne out by Moneyfact's research which reveals that the average, five-year fix now stands at 4.19 per cent. But if you pay a much higher fee than the average, you can get a much lower rate. In fact, the highest fee charged - at £3,990 by Accord, available through Legal & General Mortgage Club and other distributors - is for a deal fixed at 3.79 per cent for five years.
Looking at two-year, fixed-rate deals, the Post Office offers a loan at 3.65 per cent with no fee. However all the deals quoted are only available to borrowers with a 25 per cent deposit.
Mark Harris, of mortgage broker SPF Private Clients, said: "It is vital to work out the total cost of a mortgage deal – rate plus fees – when comparing products to ensure you know exactly how much it is going to cost.
"A large fee isn't necessarily to be avoided at all costs if it means you are accessing a rock-bottom rate, but you need to do the sums to work out whether it is worth your while."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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